Charles Krauthammer: Obama's 'tax reform' plan has backfired

Monday

Feb 11, 2013 at 2:00 AM

Charles Krauthammer

WASHINGTON — For the first time since Election Day, President Obama is on the defensive. That's because on March 1, automatic spending cuts (“sequestration“) go into effect – $1.2 trillion over 10 years, half from domestic (discretionary) programs, half from defense.

The White House promoted the idea during the July 2011 debt-ceiling negotiations. The political calculation was that such Draconian defense cuts would drive the GOP to offer concessions.

It backfired. The Republicans have offered no concessions. Obama's bluff is being called. He abhors the domestic cuts, and as commander-in-chief, must worry about Pentagon cuts that his own defense secretary calls catastrophic.

So Tuesday, Obama urgently called on Congress to head off the sequester with a short-term fix. But instead of offering an alternative $1.2 trillion in cuts, he demanded a “balanced approach, coupling any cuts with new tax increases. What should the Republicans do? Nothing.

They should explain that in the fiscal-cliff deal, the president already got major tax hikes with no corresponding spending cuts. Now it is time for a nation that's $16 trillion in debt to cut spending. That's balance.

The Republicans finally have leverage. They should use it. Obama capitalized on the automaticity of the expiring Bush tax cuts to get what he wanted at the fiscal cliff – higher tax rates. Republicans now have automaticity on their side.

If they do nothing, the $1.2 trillion in cuts go into effect. This is the one time Republicans can get cuts under an administration that has no intent of cutting anything.

The sequester is terrible policy. The domestic cuts will be crude and the Pentagon cuts damaging. This is why the Republican House has twice passed bills offering more rationally allocated cuts. (They curb, for example, entitlement spending, as well.)

The Democratic Senate has done nothing. Nor has the president – until his Tuesday plea.

The GOP should reject it out of hand and plainly explain: We are prepared to cut elsewhere. But we already raised taxes last month. If the president wants to avoid the sequester – as we do – he must offer a substitute set of cuts. Otherwise, Mr. President, there is nothing to discuss. Your sequester will go ahead.

Obama is trying to sell his “balanced” approach with a linguistic sleight-of-hand. He calls his proposed tax hikes – through eliminating deductions and exemptions – “tax reform.”

It's not. Tax reform, as defined even by the White House's own webpage on the subject, begins with lowering tax rates. It then makes up the lost revenue by closing loopholes.

Real tax reform is revenue neutral. It eliminates unfair, inefficient and market-distorting loopholes while lowering rates to stimulate economic growth. Obama has zero interest in lowering tax rates. He just got through raising them at the fiscal cliff and has made clear ever since he fully intends to keep raising taxes. His only interest in eliminating loopholes is to raise more cash for the Treasury – not to use them to lower rates.

That's not tax reform. That's an old-fashioned tax increase. Hence another Republican message: The sequester is one thing, real tax reform another. The sequester is for cutting. The only question is whether it will be done automatically and indiscriminately – or whether Obama will offer alternative cuts.

Then we can take up real tax reform. The country needs it, but first must rein in out-of-control spending. To succeed in doing that, Republicans must remain united in one demand: cuts with no taxes – or we will let the sequester go into effect. The morning after, they should sit down with Obama for negotiations on real tax reform as recommended by his own Simpson-Bowles commission: broaden the base, lower the rates.